KL bear market rally will continue
Filed Under (Market Outlook) by Webmaster on 09-02-2009
Tagged Under : bear market, KL
Business Times market outlook by Kaladher Govindan reported that Share prices on Bursa Malaysia rose last week, with most of the week’s gains captured on Friday on hopes federal funds will flow again to boost economic growth in Perak following the takeover of the state government by the Barisan Nasional (BN) from Pakatan Rakyat.
Gains were led by banks BCHB, Maybank and Public Bank, with core plantation stocks KL Kepong and Sime Darby lending a hand as crude palm oil prices climbed above the RM1,800 per tonne level.
Bursa Malaysia’s exceptional performance last Friday was a total contrast to the performance of regional markets and Wall Street. The takeover of Perak by the BN could have instilled some confidence that it would pave the way for fast implementation of public projects in the state as it is a known fact that public spending has taken a back seat after March last year.
Nevertheless, the 12-point surge in the benchmark Kuala Lumpur Composite Index (KLCI) for the week was not backed by strong volume and suggests that it has been propped up by institutional players picking up counters like Bumiputra Commerce, KL Kepong, Maybank, Public Bank and Sime Darby.
The index is expected to move further upwards to test the psychological resistance at 900 before testing 920. While the performance of the Dow Jones Industrial Average last Friday would provide some support for the upside, anticipation of further positive developments for the BN ahead of the Umno party elections in March will also help lift market momentum.
The Dow surged 217 points or 2.7 per cent to 8280.6 last Friday despite the worse-than-expected non-farm payroll numbers that saw the biggest decline since December 1974 as employers cut headcounts for the third consecutive month by 598,000 people. The New York stock market rallied despite the weak number that came above a consensus estimate of 540,000 people as the dismal figure is expected to prompt the US government to announce more aggressive measures to revive the banking industry, which could include taking up more stakes in them without nationalising them.
Back on the local front, investors are advised to sell into any bear market rally as the situation is expected to turn ugly before recovering. For instance, corporate earnings are expected to take a beating in the current environment and equity valuation could dive further from current levels as more companies report weaker-than-expected earnings in the current fourth quarter 2008 reporting season that will be concluded this month.
Listed companies are expected to take advantage of the current doom and gloom outlook to spring clean their balance sheet by making additional provisions and write-offs. Overall, earnings could contract by 2.7 per cent in 2008 compared to a double-digit growth in the year before.
In the broader economy, consensus is expecting the industrial production, export and import numbers that will be released on Wednesday and Thursday to contract by 10.4 per cent, 8.3 per cent and 11.3 per cent respectively. Weaker-than-expected numbers have the potential to dampen any bear market rally.
